Smallholder farmers who insured their crops against poor yield occasioned by bad weather have entered the second year without being compensated.

This was after the micro-insurance agent that had insured them, MicroEnsure, closed down without processing their claims. This has left the farmers — who had borrowed heavily to buy farm inputs, including seeds, fertilizers and farm chemicals distributed by the government — heavily indebted.

Contacted, Richard Leftley, the CEO of MicroEnsure Holdings, said his firm offered consultancy services to the government to provide insurance to smallholder farmers against the vagaries of weather, specifically the risk of too much or too little rain.

“MicroEnsure completed all of the deliverables it was contracted to provide and was paid in full by the donor in line with the contract but at the end of the contract we ceased to operate in Rwanda,” said Mr Leftley in an email to Rwanda Today.

The development is likely to deal a blow to the nascent insurance initiative, even after government invested heavily in its promotion as it tries to boost lending to agriculture, which averages four per cent.

READ: Rwanda crop insurance sector suffers blow as key firm closes down

Mainly due to limited lending to the sector, agricultural production has for two straight years — 2012-2013 — stagnated at three per cent, largely a result of erratic rains in several parts of the country, putting some areas at risk of famine. At macroeconomic level, however, the export earnings from agriculture, which is seen as the backbone of the economy, have been dwindling.

“The withdrawal of MicroEnsure and eventual failure of the payment of claims to farmers is a setback,” said Eric Rwigamba, director-general, Financial Sector Development, at the Ministry of Finance and Economic Planning.

The Europe-based micro-insurance agent closed shop in Rwanda in June, leaving 21,000 farmers in different parts of the country ignorant about the value of their claims. Market information indicates that some farmers are paying as high as 30 per cent in premiums to insure their crops against bad weather but groups pay less, depending on the season and region.

Eastern Province attracts high premiums because the area is categorised as high-risk due to its unpredictable rains while farmers in the Northern and Western provinces pay less premiums.

Since MicroEnsure had not processed claims, Soras, a local insurance firm, says it cannot pay the farmers as they did not enter into a direct contract with them. Soras was to pay 10 per cent of the claims and MicroEnsure 90 per cent, supported by a Europe-based reinsurance firm, Swiss Re.

“The contract we entered with MicroEnsure says the insurance agent has to declare a claim or no claim,” said Esdras Nkundumukize, the Soras commercial director. “But MicroEnsure has not introduced any claim for any consideration.”

Meaning the government and organisations that have been pressuring Soras to pay the farmers have to wait until MicroEnsure files the claims and a list of the beneficiaries.

“We did not enter into any contract with districts,” said Mr Nkundumukiza, adding that should Soras get the claims, the farmers will be paid.

The project, a brainchild of the Ministry of Agriculture and Animal Resources (Minagri) that was started in 2011, officially stopped operations in the country in June after it ran out of funds when donors closed the taps.

The three-time $1.6 million (Rwf1.1 billion) grant sourced from IFC, a member of the World Bank Group, got exhausted and efforts to source for more funds hit a snag when other donors turned down requests to finance the project. The problem was worsened when a donor who had promised $230 million (Rwf159 billion) failed to honour the pledge.

Mr Leftley said his firm took steps at the end of the project to transition all the farmers that they served to local companies that offer similar services. But information from the ministry says that besides MicroEnsure experiencing financial constraints, some farmers were not receiving pay-outs on technicalities.

The government was looking to Acre Africa, another firm that offers similar services as MicroEnsure, to take up the farmers. However, community-based organisations and local leaders told Rwanda Today that that has not been successful as anticipated.

“The liabilities of taking over MicroEnsure clients are too high,” said Thomas Bazarusanga, the country manager of Acre Africa.

READ: Bad loans now threaten rapid growth of Rwanda's Saccos